TMI Blog1989 (3) TMI 363X X X X Extracts X X X X X X X X Extracts X X X X ..... hedule to the Kerala General Sales Tax Act, 1963 at the last purchase point. In so saying, this Court relied on the decision of the Supreme Court in McDowell Co. Ltd. v. Commercial Tax Officer [1985] 59 STC 277 where the court considered the scope of rule 76 of the Andhra Pradesh Distillery Rules, 1970, as amended in 1981, and held that the liability for payment of excise duty was that of the manufacturer (distillery owner and seller). This is what the court stated: "that under rule 76 of the Distillery Rules as amended in 1981 the liability for payment of excise duty was that of the manufacturer and rules 80 to 84 did not detract from the position that Payment of excise duty was the primary and exclusive obligation of the manufacturer and if payment be made under a contract or arrangement by any other person it would amount to meeting of the obligation of the manufacturer and nothing more. Payment of excise duty was a condition precedent to the removal of the liquor from the distillery and payment by the purchaser was on account of the manufacturer. According to normal commercial practice, excise duty should have been reflected in the appellant's bill either as merged in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of land revenue by reporting to the Central Government or the State Government as the case may be. There is no such procedure prescribed with regard to owners of estates. It would follow that under the rules the demand notice is to be sent only to the manufacturers and the amounts of duty are to be realised from them alone. The substantive provisions of sub-sections (4), (5) and (6) of section 12 also contemplate assessment being made with regard to the returns to be furnished by owners and manufacturers. Any person aggrieved by an assessment has been given the right of appeal to the District Judge. But as pointed out before, there is no provision either in the statute or in the rules for a demand to be made and a corrective process to be employed in the event of failure to make the payment. That is done by rule 33-D alone from which it would be reasonable to conclude that under the rules it is only the manufacturers who are liable to pay the amount of duty. The rules can, therefore, be said to make a definite provision with regard to the category of persons from whom the collection of the duty is to be made, namely, the manufacturers. (emphasis* supplied) It is thus clear, as cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 37 of 1987), M. Pathrose Mathai (in W.A. No. 681 of 1986 and O.P. No. 1344 of 1987), for the petitioners. N.N.D. Pillai, Government Pleader (in T.R.C. Nos. 35,36 and 37 of 1987), Advocate-General and V. Jayakumar, Government Pleader (in W.A. No. 681 of 1986) and N.N. Divakaran Pillai, Special Government Pleader (Taxes) (in O.P. No. 1344 of 1987), for the respondents. N.N.D. Pillai, Government Pleader (in T.R.C. No. 101 of 1983), for the petitioner. M.A. Thrivikrama Pai (in T.R.C. No. 101 of 1983), for the respondent. JUDGMENT The judgment of the Court was delivered by K.S. PARIPOORNAN, J. (on behalf of himself and SREEDHARAN, J.)These are connected cases. The sole question that arises for consideration in these cases is whether the cess payable and paid by the manufacturers, under the Rubber Act, 1947 and the Rules, will form part of their purchase turnover, under the Kerala General Sales Tax Act. In a common order, dated 20th November, 1986, in T.A. Nos. 601 to 603 and 838 of 1986, which is the subject-matter of T.R.C. Nos. 35, 36 and 37 of 1987, the Appellate Tribunal held that it is so. In an earlier order, in T.A. No. 102 of 1978 dated 5th October, 1982, which is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 833). In further appeals by the assessee, the Sales Tax Appellate Tribunal affirmed the decision of the authorities below and sustained the addition of cess, paid by the assessee to the Rubber Board, as part of its purchase turnover. Aggrieved by the aforesaid decision of the Sales Tax Appellate Tribunal, so rendered by its common order dated 20th November, 1986, the assessee has come up in revisions. It is common ground that under the Rubber Act, 1947 and the Rules, the cess was payable and paid by the assessee-company direct to the Rubber Board. The question is, whether cess so payable and paid by the assessee will form part of its purchase turnover? It has been held to be so by a Division Bench of this Court in Deputy Commissioner of Sales Tax v. Bata India Ltd. [1986] 62 STC 436; 1986 KLT 833. 3.. When the above three revisions were initially heard by a Division Bench, consisting of their Lordships Dr. T. Kochu Thommen and K.P. Radhakrishna Menon, JJ., the Bench felt that there is an apparent conflict between the decision in Bata India Ltd. case [1986] 62 STC 436 (Ker); 1986 KLT 833 and the subsequent decision of this Court in Madras Rubber Factory v. Rubber Board 1986 KLT 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a return stating the total amount of rubber produced on the estate in each such period, not later than fifteen days after the expiry of the period to which the return relates: Provided that in respect of an estate situated only partly in India, the owner shall in the said return show separately the amounts of rubber produced within and outside India. (5) If any owner of an estate fails to furnish in due time the return referred to in sub-section (4) or furnishes a return which the Board has reason to believe is incorrect or defective, the Board may assess the amount payable by that owner in such manner as may be prescribed. (6) Any owner of an estate aggrieved by an assessment made under this section may within three months of the service of the notice under sub-section (2) apply to the District judge for the cancellation or modification of the assessment, and the District judge shall, after giving the Board an opportunity of being heard, pass such order (which shall be final) as he thinks proper. (7) The proceeds of the duty of excise collected by the Board and any of the fees levied under this Act (all of which shall form part of the Consolidated Fund of India) reduced by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the duty of excise in such manner as may be prescribed. (6) Any person aggrieved by an assessment made under this section may, within three months of the service of the notice under subsection (3), apply to the District Judge for the cancellation or modification of the assessment, and the District judge shall, after giving the Board an opportunity of being heard, pass such order (which shall be final) as he thinks proper. (7) The proceeds of the duty of excise collected under this section reduced by the cost of collection as determined by the Central Government shall first be credited to the Consolidated Fund of India, and then be paid by the Central Government to the Board for being utilised for the purposes of this Act, if Parliament by appropriation made by law in this behalf so provides." Rule 33-D of the Rubber Rules, reads thus: "33-D. (1) Every manufacturer shall by demand notice sent through registered post or in such other manner as the Board may direct be intimated of the amount assessed on the quantity of rubber acquired during the periods specified in rule 33(e). On receipt of such notice, the manufacturer shall Pay to the Board the amount specified th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... casions. The important decisions on this aspect are: In re Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938 [1938] 1 STC 1 (FC); AIR 1939 FC 1, Province of Madras v. Boddu Paidanna Sons [1942] 1 STC 104 (FC); AIR 1942 FC 33, Governor-General in Council v. Province of Madras [1945] 1 STC 135 (PC); AIR 1945 PC 98, Chhotabhai v. Union of India AIR 1962 SC 1006, R.C. Jall v. Union of India AIR 1962 SC 1281, In re Sea Customs Act AIR 1963 SC 1760-Special Bench, Guruswamy Co. v. State of Mysore AIR 1967 SC 1512, Jullundur Rubber Goods Manufacturers' Association v. Union of India AIR 1970 SC 1589, A.B. Abdul Kadir v. State of Kerala AIR 1976 SC 182, McDowell Co. Ltd. v. Commercial Tax Officer [1985] 59 STC 277 (SC) and Union of India v. Bombay Tyre International Ltd. AIR 1984 SC 420. Of the above, the decision In re Sea Customs Act case AIR 1963 SC 1760 is a decision rendered by a Special Bench of nine Judges of the Supreme Court of India on a reference made by the President of India under article 143(1) of the Constitution of India. Broadly stated, "duty of excise" is an impost on articles produced or manufactured and it can be levied at convenien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition of rubber by a manufacturer is presumed to be for its user. In coming to the said conclusion, the Bench followed the earlier decision of this Court in Ruby Rubber Works v. Rubber Board 1965 KLT 1159 and also the decision of the Supreme Court in J.R.G. Mfg. Association v. Union of India AIR 1970 SC 1589. The above decision, rendered by the Bench in Madras Rubber Factory v. Rubber Board 1986 KLT 935 was sought to be taken in appeal before the Supreme Court by the manufacturer. But, S.L.P. (Civil) No. 12787 of 1986, filed seeking special leave was rejected by the Supreme Court on 29th January, 1987. 7.. As stated, the revision petitioner (assessee) who was assessed and was made liable to pay rubber cess under the Rubber Act and the Rules, complained that the rubber cess so paid by them cannot form part of their purchase turnover of rubber. The Appellate Tribunal held that rubber cess paid by the revision petitioner (manufacturer) is part of the purchase turnover, solely relying on the decision of this Court in Bata India Ltd. case [1986] 62 STC 436; 1986 KLT 833. In deciding that "rubber cess" assessed and paid by the manufacturers will form part of their purchase turnover und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e owner or from the manufacturer, that it is not a case of the transfer of the burden, that section 12(1) and 12(2) should be read together, and not in isolation, that after the amendment to section 12(2) of the Act, the rules made by the Board for the collection is part of section 12(2) of the Act and so section 12(2) should be read along with rule 33-D in order to understand the incidence of levy and also the person on whom the liability is cast to pay the cess under the Act. It was argued that as per section 12(2) of the Act, as amended in 1960, read along with rule 33-D, the primary liability is on the manufacturer and not on the grower. Section 12(1) of the Act is silent on whom the liability is cast. Section 12(1) and 12(2) of the Act should be read along with rule 33-D. Though section 12(1) of the Act is silent on whom the liability is cast, section 12(2) of the Act, read along with the rules, to be prescribed by the Board, predicates that either the producer or the manufacturer can be made liable. The levy is in the alternative. The incidence of the levy as also the person on whom the liability should be cast, depended on the rules framed by the Board. In this view, reading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amendment, in section 12(2) of the Act in 1960, is to make the collection, easy and convenient. Excise duty is charged on the production of goods sold and so it forms part of the sale consideration. 10.. On hearing the rival pleas put forward before us, with respect, we are of the view that the Division Bench, in deciding Bata's case [1986] 62 STC 436 (Ker); 1986 KLT 833, did not view the concept of excise duty in the correct perspective and as laid down by the decisions of the Supreme Court and as explained by the earlier Division Bench of this Court in Jose v. State 1973 KLT 463. It should also be stated that the scope and effect of the amendment to section 12(2) of the Rubber Act and the Rules and the construction to be placed on the statutory provisions [section 12(1), section 12(2) and rule 33-D] have not been done in conformity with the decision of the Supreme Court in J.R.G. Mfg. Association's case AIR 1970 SC 1589 or from a proper angle or focus. We shall explain these aspects in the following paragraphs. 11.. We have already stated that the excise duty is a levy in relation to goods. It is a duty in respect of manufacture or production of goods. It is not strictly or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 938] 1 STC 1 (FC); AIR 1939 FC 1, R.C. Jall v. Union of India AIR 1962 SC 1281, etc., disapproved the emphasis placed on section 12(1) of the Act as the charging section, and observed: "We find it difficult to endorse the reading of sub-section (1) and sub-section (2) of section 12 in isolation." (Para. 6) It was stated that the section should be read as a whole and together. It was further held, in para 8 of the judgment, as follows: "In section 12(2) the Parliament has made it quite clear that the Board can levy and collect the duty of excise either from the owner of a rubber estate on which the rubber is produced or from the manufacturer by whom such rubber is used. * * * The policy of the Act has been enunciated with sufficient clarity and the guidance has been furnished by the provisions to which reference has been made as to how the Board should exercise its powers in the matter of levy and collection of tax." Proceeding further, in paragraph 9 of the judgment, the court observed: "The provision in section 12(2) that the Board shall 'levy and collect' the duty in accordance with the Rules is another important safeguard against the Board acting arbitrarily in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er alone. In this view of the matter, we are of the view, that after the amendment of the Act in 1960, the scheme of the Act is to levy the duty on the manufacturer (alone) and collection is also made from him (alone). The levy cannot be said to be "charged" on the production of goods sold. It cannot form part of the sale consideration of the producer or the grower of rubber. 12. We should state, that since the "levy of cess" after the amendment of the Act and the rules is on the manufacturer, the total amount charged as consideration by the owner of the estate or the producer, for the sale of rubber to the manufacturer, did not and could not include the "cess" (payable and paid by the manufacturer) as part of the consideration for the sale of rubber. Payment of "cess" was not a "burden" on the producer at all. It is a levy or burden on the manufacturer of rubber alone, by the Rubber Act and the Rules. The impost is legally permissible and competent as an "excise duty" in the light of the decisions in In re Sea Customs Act AIR 1963 SC 1760 and Jose's case 1973 KLT 463. In the light of the above discussion, with great respect, we are not persuaded to agree with the conclusion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m part of its purchase turnover. The reasoning and conclusion to the contrary by the Sales Tax Appellate Tribunal, in its common order dated 20th November, 1986 in T.A. Nos. 601 to 603 and 838 of 1986, that the payment of cess to the Rubber Board constituted part of purchase turnover of the revision petitioner, is clearly erroneous in law. We set aside the aforesaid common order of the Appellate Tribunal to the above extent. The Tax Revision Cases Nos. 35 to 37 of 1987 are allowed. 15.. In the light of our decision in T.R.C. Nos. 35 to 37 of 1987, we should uphold the order of the Tribunal dated 5th October, 1982 in T.A. No. 102 of 1978 and dismiss T.R.C. No. 101 of 1983. We hereby do so. 16.. Similarly, we set aside the judgment of the learned single judge rendered in O.P. No. 5767 of 1986-J and allow Writ Appeal No. 681 of 1986 to the extent of holding that the cess paid by the appellant under the Rubber Act, 1947 and the Rules will not form part of its purchase turnover. For the same reasoning, exhibits PI to P3 notices, issued by the assessing authority, in O.P. No. 1344 of 1987, proposing to include the cess as part of the purchase turnover of the petitioner-manufacturer a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turers have to submit half-yearly returns showing total quantity of rubber produced or otherwise acquired and consumed or used in the process of manufacture. The Board can, after making enquiry, assess the amount of duty payable. Under rule 33-D on notice of demand the manufacturer has to pay the amount assessed on the quantity of rubber acquired. On his failure to make such payment, the Board can take steps for recovery of the amount as arrears of land revenue. Under the rules, the demand notice is to be sent only to the manufacturers and the amount of duty is to be realised from them alone. 6.. The substantive of provisions sub-sections (4), (5) and (6) of section 12 contemplate assessments being made with regard to the return to be furnished by owners and manufacturers. The rules make a definite provision with regard to the category of persons from whom the collection of the duty is to be made, namely, the manufacturers. There is no provision either in the Act or the Rules for a demand to be made on the owner of the estate. 7.. The contention raised on behalf of the manufacturers is that when the cess is paid by the manufacturer on demand after assessment, the payment is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itable machinery for collection without disturbing the essence of the tax or ignoring the rational connection between the tax and the person on whom it is imposed. 10.. The levy of cess is under sub-section (1) of section 12 of the Act. The impost is on production. The duty of excise thus levied is to be collected as provided in sub-section (2) either from the owner or the manufacturer. Sub-section (3) fastens liability to pay the duty both on the owner as well as the manufacturer. Sub-section (4) prescribes the procedure for assessment. The term "levy" is wider in its import than the term "assessment". Levy may include both imposition of a tax as well as the assessment. However, levy does not extend to collection. The term "imposition" is generally used for levy of a tax or duty. "Assessment" is generally the actual procedure adopted in fixing the liability to pay tax. What is contemplated under sub-sections (3) and (4) of section 12 is the quantification of the amount of the cess payable on the rubber produced for the purpose of collection from the manufacturer who has used the same. The cess paid by the manufacturer on such assessment being the excise duty levied on producti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e distinguished from direct taxes like taxes on property and income." On the principle that duty of excise is in essence trading tax and not tax on property, the contention that levy of excise on goods under item 84 of List I of the Seventh Schedule to the Constitution is a tax on property and therefore, no excise can be levied on goods belonging to States and manufactured by them was negatived by the Supreme Court. The statement of law in this decision followed in E.R. Jose v. State 1973 KLT 463 in no way supports the contention that the rubber cess is a levy on the manufacturer who uses the rubber. It is an impost on the act of production. 12.. The validity of the amendment of section 12 by Act 21 of 1960 was challenged in Jullundur Rubber Goods Manufacturers' Association v. Union of India [1970] 2 SCR 68. The validity and legality of levy of cess by way of excise duty on the rubber used by manufacturers of chappals under the provisions of the Rubber Act, 1947 as amended was assailed in that case. The contentions raised were that the duty sought to be imposed under section 12 as amended being outside the ambit of entry 84 of List I in the Seventh Schedule of the Constitution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion does not in any way advance the case that the impost is on the manufacturer and the payment of cess by the manufacturer is in discharge of the statutory liability on account of such impost. On the other hand, it is clearly laid down that sub-section (2) is an enabling provision for making the assessment and collection in accordance with the rules for administrative convenience. 13.. There is, therefore, no force in the contention that the Division Bench proceeded to decide the question without examining the concept of excise duty or applying the principles laid down in Jullundur Rubber Goods Manufacturers' case AIR 1970 SC 1589; [1970] 2 SCR 68. There is no controversy that the rubber cess is a duty of excise on production. It was nowhere contended that the charge is on use of rubber. Under the provisions of the statute, such a contention cannot hold good. It is not correct to say that the cess is not charged on the production of rubber or that the incidence of levy is not on the producer or owner of the estate and that the levy is on the manufacturer from whom the cess is collected. It is not an independent impost on the manufacturer. Prior to the amendment made by Act 21 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of the manufacturer of rubber to pay the cess to the owner who produced the rubber for being remitted to the Board is statutorily converted as the liability to pay directly to the Board. In other words, the owner who produces the rubber is relieved of the obligation of collection from the manufacturers while passing on the incidence of the duty to the latter deferring payment of part of the consideration for the sale. The manufacturer who thus suffers the incidence of duty is only paying for the goods and the payment so made indirectly enters the purchase price. 16.. The collection from the manufacturer does not therefore entitle the manufacturer to claim that the payment is not a component part of the sale consideration for the purpose of being included in the purchase turnover which is exigible to sales tax under entry 38. 17.. I am, therefore, unable to agree with the view that the cess in the form of excise duty levied on all rubber produced in India under the Rubber Act and the Rules is a separate and independent impost on the manufacturer who consumes the same and it can never form part of the purchase turnover of the petitioners. I am clearly of the view that Deputy C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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